Scripps Health has made a starting bid of $10.7 million for San Diego Hospice’s real estate and other assets and plans to advance the nonprofit $5 million so that it can continue to make payroll, a new bankruptcy filing shows.

The hospice announced Wednesday that it would cease operations and begin laying off employees within 60 to 90 days, and its latest bankruptcy filing paints a picture of an organization on the edge of financial collapse.

The latest filings include a 15-page declaration made by William H. Parker, the hospice’s chief operating officer, which says San Diego Hospice “was only able to make payroll for the week ending Feb. 8, 2013, by not paying its vendors.”

Without a short-term loan from Scripps, Parker states in his declaration, San Diego Hospice will “run out of cash beginning the first week of March” and would likely “miss its upcoming Feb. 22, 2013, payroll.”

The hospice announced on Feb. 4 that it had declared bankruptcy due to the ill effects of an ongoing Medicare audit of its billing practices. The audit focuses on whether the hospice properly followed government guidelines that pay for hospice care only if a patient is likely to die within six months. In some instances, the hospice’s executive director, Kathleen Pacurar, has said, San Diego Hospice received payment for patients who did not technically qualify for the benefit, creating a situation where the organization may have to return millions to Medicare.

Since the hospice announced the audit, and a round of layoffs, its daily patient census has dropped from about 1,000 patients per day to about 450. That drop, bankruptcy documents show, has been financially disastrous.

“The net effect of these issues has been a 50 percent decline in revenue over the course of the past 90 days. Expenses exceed revenue by over $16 million and the (hospice) is left facing an annual operating loss of approximately $19 million,” Parker’s declaration says.

San Diego Hospice's bankruptcy proposal calls for the auction of its main 8.24-acre property on Third Avenue in Hillcrest. That property includes a main 24-bed, 45,000-square-foot main hospital building, a smaller 26,000-square-foot office building and a 2,600-square-foot engineering building. The entire property, and all of the buildings on it, are part of the auction proposal.

Scripps offer of $10.7 million for the property will serve as the "stalking horse" if the bankruptcy court approves the hospice's auction proposal. Scripps has also offered to absorb about 300 of the hospice’s existing patients.

It its filing, San Diego Hospice says that it must lay off 240 of its 507 current employees, and $1.5 million of the $5 million loan from Scripps would go toward making those layoffs. An additional $1.3 million would be used to make the hospice's next payroll on Feb. 22 for its remaining employees, while the remaining $2.2 million, plus another $2.2 million in current accounts receivable, would pay for operations while the transition of patients continues.

The bankruptcy filing proposes an auction on April 30, 2013, at 9:30 a.m. before Judge Margaret M. Mann in Room 118 at the federal courthouse on West F Street in downtown San Diego.